Deal would give combined operation nearly $1 billion in assets

Nov. 22, 2013

Franklin Synergy CEO Richard Herrington

Written by

Jamie McGee

The Tennessean

The parent company of Franklin Synergy Bank announced a merger with MidSouth Bank that would allow it to expand into Rutherford County and increase its asset size to $920 million.

Franklin Synergy CEO Richard Herrington will lead the combined bank as chief executive officer, and Lee Moss, CEO of Murfreesboro’s MidSouth, will be president.

“As a bank looking to continue to grow, there is no better place to grow for us than in Rutherford County,” Herrington said. “Both our banks are strong, both are well-capitalized, and being able to put two strong banks together is a real plus.”

Franklin Synergy, based in Franklin, had $660 million in assets as of Sept. 30, and its shareholders will own 64 percent of the combined company. Shareholders of MidSouth Bank, with $261 million in assets, will own 36 percent.

The deal, which is valued at nearly $40 million, will move Franklin Synergy closer to its immediate goal of becoming a $1 billion bank. The bank raised $15 million through institutional investors this fall as the next step toward an initial public offering, which could come in late 2014 or in 2015, according to Herrington.

Banking attorney Charles W. Bone described the deal as a “win” for both companies.

“(Franklin Synergy) has had a terrific growth rate in Williamson County, and now, to be able to join with a bank in Rutherford County, two of the hottest, best markets in the South, this gives them a great competitive advantage,” said Bone, chairman of Bone McAllester Norton in Nashville.

Herrington approached Moss in December 2012, interested in growth opportunities in Rutherford and envisioning faster growth through an acquisition than starting branches there.

Moss said he had not been pursuing a buyer, but given the outlook for bank consolidation in the region, he thought it was wise to merge on the front end and do so with a strong partner.

“We had interest in being in Williamson County, and Franklin Synergy had an interest in being in Rutherford County,” Moss said. “We both knew we can do this cheaper and more efficiently and, ultimately, at a greater return to our shareholders by doing this as partners.”

The deal is expected to close in the first half of 2014, pending regulatory and shareholder approval. Moss said he does not anticipate layoffs to come from the merger, given the strong growth in both Williamson and Rutherford counties.

MidSouth reported net income of $1.6 million in 2012, compared to a $10.2 million loss in 2009, as its real estate investments declined in value and it was placed under regulatory scrutiny. The bank was able to raise $6 million in new capital in 2010 and 2011, and problem loans have declined.

The merger comes as Middle Tennessee has been targeted as a growth area by larger banks, making the landscape more competitive. At the same time, increasing regulation is expected to weigh on earnings and spur further deals.

“I don’t think we are going to see regulatory relief any time soon,” said Mary Neil Price, a lawyer at Dickinson Wright, who works on bank mergers. “That makes it difficult for community banks under a certain size to make money and to compete.”

The merger is the second in the area since the recession, following CapStar Bank’s purchase of American Security & Trust in 2012. That existing banks have strengthened since the recession could also contribute to additional mergers in the Middle Tennessee area, according to Bone.

“This is a clear signal that the combination of community banks is going to be a serious strategy as we go through the next few years,” Bone said. “There will be more consolidations of the community banks, now that values have come back and there is more certainty about the loan portfolios.”

MidSouth Bank, founded in 2003, will receive 0.4 shares of Franklin Financial Network’s common stock for each share of MidSouth Bank and 0.8 shares of Franklin Network common stock for each share of MidSouth Bank preferred stock.

Under the merger, Franklin Synergy Chief Financial Officer Sally Kimble will be CFO of the combined company, and Kevin Busbey, MidSouth’s chief financial officer, will be CFO of the combined bank. At closing, Moss and two MidSouth directors will join the now seven-person board of Franklin Network.

Herrington founded Franklin Synergy in 2007, having launched Franklin National Bank in 1989 before leading Civitas BankGroup, parent company of Cumberland Bank, both of which went public. Given that its launch date came just a year before the financial crisis erupted, Franklin Synergy was able to avoid the amount of problem loans that troubled other banks during that time.

Franklin Synergy has 122 employees and six branches in Williamson County. MidSouth operates five branch offices in Rutherford County.

SunTrust Robinson Humphrey Inc. and law firm Baker Donelson advised Franklin Synergy on the merger, and MidSouth was advised by Sterne Agee & Leach Inc. and law firm Daniel W. Small & Co.